Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations

Volume 3 of 3 | January 2019

Streamlining and Improving Compliance Volume 3

Recommendation 71: Adopt a professional practice guide to support the 

contract audit practice of DoD and the independent public accountants DoD 

may use to meet its contract audit needs, and direct DoD to establish a working 

group to maintain and update the guide.

Problem

DCAA provides professional services and skilled advice to DoD contracting officers. With the 

introduction of independent public accountants (IPAs) into these oversight functions, the quality and 

consistency of advice contracting officers receive will depend on the quality and consistency of how 

oversight professionals interpret and apply foundational standards that guide their work. 

Background

Although professional standards are common in the auditing profession, none of them have been 

developed or interpreted for the unique purpose of federal government contract oversight. DCAA’s 

Contract Audit Manual provides a good foundation, but it lacks the collaborative inputs, perspectives, 

and interpretations of knowledgeable professionals outside DCAA and the government. This point is 

important because IPAs and other qualified professional services firms are playing an increasingly 

important role in the government’s oversight of federal government contractors.

Discussion

Because professional standards generally establish principles rather than rules, they are subject to 

interpretation. DoD’s oversight professionals will benefit from a uniform, collaborative interpretation 

of certain professional standards as they apply to government contract oversight. Without a

professional practice guide (PPG), contracting officers will be underserved and likely confused by 

inevitable inconsistencies among audit and advisory reports issued by DCAA, DCMA, and IPAs. 

Professional standards of importance that require a collaborative interpretation on how to apply the 

standards in the contract oversight environment include (among many others) materiality, risk, 

internal controls, independence, objectivity, sufficient evidence, and reliance on the work of others.

Conclusions

The Section 809 Panel’s Volume 1 Report concluded that a PPG would be beneficial and supplemental to 

existing guidance for professionals involved in the business of government contract auditing. As 

written by the Section 809 Panel, the PPG (see Attachment 6-1) provides information on how to 

interpret and apply specific auditing concepts for government contract audits to assist government 

auditors, private-sector auditors, contracting officers, and other stakeholders involved in the audit 

process. Although these concepts are established in auditing literature, the PPG focuses on how the 

concepts can be applied for the unique purpose of federal government contract oversight. A working 

group of subject-matter experts in contract auditing developed the guide for the panel. The team 

included members from key stakeholder communities, including Section 809 Panel representatives, 

DCAA, GAO, AICPA, DCMA, and industry. Members of the team worked collaboratively to consider 

and address concerns that have been raised by Congress and others. 

The PPG provides the requisite guidance to address Congress’s direction to the Section 809 Panel in the 

FY 2018 NDAA, Section 803, with respect to numeric materiality. The PPG sets forth clear materiality 
Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations

Volume 3 of 3 | January 2019

Streamlining and Improving Compliance Volume 3

guidelines that help oversight professionals plan their work and provide the information contracting 

officers need to make reasonable business decisions. What may be material to a particular business

decision will be influenced by a variety of qualitative and quantitative considerations, recognizing that 

the contracting officer’s role is to manage DoD’s risk, rather than avoid it. The cost of DoD’s oversight, 

including adverse effects on the timeliness of decision making, must be balanced with expected 

benefits of that oversight. The Cost Accounting Standards (CAS) Board’s administrative regulations 

establish a variety of qualitative materiality considerations appropriate for and applicable to any 

business decision affecting contract costs/prices.

Besides materiality, the PPG addresses an internal controls framework for audits of contractor 

accounting systems. As discussed below, adoption of the internal controls framework for review of 

accounting systems requires amendments to statute and the DFARs, and the Section 809 Panel provides 

the appropriate language in support of the amendments.

In the Section 809 Panel’s Volume 1 Report, Recommendation 14 provided for DCAA to incentivize 

contractor compliance and manage risk efficiently through robust risk assessment. The PPG provides a 

risk model that should be employed by DCAA. Although, DCAA has historically used a risk-based 

approach to determine which contractors are subject to incurred cost audits, as part of the PPG 

working group, DCAA has embraced an expanded risk model to include additional risk factors that 

further refine and improve the process. 

The Volume 1 Report noted that DCAA plays an important role within DoD’s system of acquisition 

internal controls. When these controls are operating effectively and efficiently, they provide DoD 

reasonable assurance that contract prices and cost reimbursements are free of material unallowable costs. 

This concept, established by the COSO Internal Control Framework and incorporated into GAO’s 

Standards for Internal Control in the Federal Government (i.e., Green Book), is fully compatible with the 

FAR guiding principle of shifting focus from risk avoidance to risk management. To accomplish the 

desired outcome of both the federal government’s internal control framework and the FAR’s Guiding 

Principles, it is important to recognize DCAA’s role in developing and embracing the enhanced risk 

model. 

Implementation

Legislative Branch

§ Direct DoD to adopt the PPG as guidance in support of DoD’s contract audit practice and the 

practice of IPAs that the Department may use in support of its contract audit needs. In adopting 

the PPG, the Congress should ensure that DoD establishes a collaborative process for future 

maintenance of the guide to include changes to the guide. Specifically, direct the Secretary of 

Defense to charter a PPG working group (PPGWG), chaired by DCAA/DCMA for the purpose 

of ensuring the same collaborative process is used for changes to the guide as was established 

by the Section 809 Panel. As part of this direction, the PPG does not take the place of federal 

regulations or auditing standards. Direct the Secretary of Defense to charter a working group

similar to the Section 809 Panel, that is exempt from FACA, although the proceedings and 

decisions of the panel would be posted on the DCAA website. 
Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations

Volume 3 of 3 | January 2019

Streamlining and Improving Compliance Volume 3

Executive Branch

§ Adopt the PPG as guidance in support of DoD’s contract audit practice and the practice of IPAs 

that the Department may use in support of its contract audit needs. In doing so, the Secretary of 

Defense should charter a PPGWG, chaired by DCAA/DCMA for the purpose of ensuring the 

same collaborative process is used for changes to the guide as was established by the 

Section 809 Panel. The process should ensure that the PPG stays current with changes in the 

practice and that changes to the guide are considered collaboratively by a group of experts in 

the field of contract auditing. Specifically, the Section 809 Panel recommends the following 

approach to long-term support of the PPG. 

- The Secretary of Defense should charter a PPGWG with five permanent representatives:

o A representative of the DCAA appointed by the Director of DCAA.

o A representative of the DCMA appointed by the Director of DCMA.

o A representative of the U.S. GAO appointed by the Comptroller General of the United 

States.

o A representative of industry nominated by CODSIA and agreed on by a majority of the 

representatives from DCAA, DCMA, and GAO. 

o A representative from the American Institute of Certified Public Accountants and 

agreed on by a majority of the representatives from DCAA, DCMA, and GAO.

§ Rotate the committee chair position biennially between DCAA and DCMA. The chair is 

responsible for scheduling and recording proceedings and decisions made by working group 

members. The committee members do not have terms but changes to membership on the 

committee should be re-assessed by the collective members on an annual basis. The appointees 

from the DCAA, DCMA, GAO, and AICPA will be automatically removed from the working 

group should they leave their organizations. The working group will meet not less than semiannually and otherwise as determined necessary by the members of the committee. The 

working group shall have an indefinite termination date.

§ Administer the PPG at DCAA as follows:

- Self-initiate minor revisions due to spelling and grammatical errors.

- Make substantive changes as agreed on by a majority of the PPG working group members.

- Maintain the most recent version of the PPG on the DCAA public website.

§ Adopt substantive revisions based on a majority vote of working group members. Substantive 

revisions are defined as changes to the guides meaning, adding new context to existing concepts 

in the guide or adding or deleting information in the guide. 

Implications for Other Agencies

§ There are no cross-agency implications for this recommendation.